Guzman y Gomez is shifting focus back to Australia after dumping its failed US expansion, with commercial property experts tipping a fierce battle for prime suburban fast-food sites.

Fast-food giant Guzman y Gomez is shifting focus to an aggressive 1000-store land grab across Australia after dumping its failed American expansion.

The ASX-listed burrito chain has abandoned its struggling US restaurants and flagged a $US30m ($42m) to $US40m ($56m) hit to exit America and refocus on its core Australian market.

Investors sent GYG shares almost 20 per cent higher on Friday, despite the one-off cost, as the company moved to end a costly six-year push into the world’s biggest fast-food market.
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But commercial property experts say the real battle is now at home, where GYG is chasing prime suburban sites as part of a long-term plan to grow from about 250 Australian restaurants to 1000.

Colliers retail leasing manager Nathan Brown said GYG remained one of the strongest quick-service restaurant tenants in the country, despite its US retreat.

“From an Australian point of view, they only take the A-grade sites,” Mr Brown said.

“They do not take the B-grade, C-grade sites, which some of these other tenants, like Taco Bell or Carl’s Jr, have taken in the past.

“And they’re extremely tough negotiators.

“They’re easy to deal with, but they’re tough negotiators.”

Colliers retail leasing manager Nathan Brown said Guzman y Gomez remained one of Australia’s strongest quick-service restaurant tenants, but its 1000-store target would depend on securing scarce A-grade sites.

Mr Brown said the failed US expansion was unlikely to hurt GYG’s standing with Australian landlords.

“I don’t really think it’s going to affect them, because they’ve built a certain brand here in Australia now,” he said.
“I think in terms of sentiment, the most popular brand in Australia right now is most certainly GYG with consumers, in my opinion.

“Maccas has probably dropped back a bit. KFC has probably dropped back a bit.

“That whole clean, fresh eating campaign that you consistently hear on radio or see on television definitely translates with what the Australian market wants these days.”

Mr Brown said GYG’s 1000-store ambition was real, but finding the right land would be a major challenge as fast-food operators competed with housing developers for scarce suburban blocks.

“Every time a retailer puts a number of stores out there, that’s very much a blue-sky goal,” he said.

“What is the actual realistic chance of that happening? I think it’s a bit lower than that.

Guzman y Gomez founder and co-chief executive Steven Marks has pulled the pin on the chain’s US restaurants after conceding the American expansion would take more time and capital than expected.

“But where that typically comes from is those brands mapping out wish locations where they would like a site.

“And albeit they might like that location, it might be extremely hard to find that piece of real estate in that location.”

He said established suburbs were particularly difficult because the kind of large, prominent blocks fast-food chains wanted were often worth more as residential development sites.

“If I use the example of Caulfield in Victoria, where are you going to find a 2000sq m piece of land where you’re going to be able to build a fast-food restaurant on it over residential or mid-rise residential?” he said.

“You’re not. That’s not the highest and best use for that location.

“So, albeit they want those locations, that doesn’t necessarily mean they can actually materially get it.

“There might be only one or two sites in that whole suburb that relate to the requirements they have.”

Steven Marks said the US business was unlikely to justify further shareholder investment, with GYG now expected to sharpen its focus on its Australian growth plans.

Mr Brown said GYG’s store target was not just a public relations number.

“From dealing with them, that 1000 number is bang on,” he said.

“I was in a meeting with them two days ago and that was reiterated, that the 1000 mark is the number they want to hit.

“So it’s practically happening on the ground as well and not just a number that’s put out there in the consumer and media world.”

Guzman y Gomez has abandoned its Chicago restaurants after a costly six-year push into the US, but its Australian store ambitions remain firmly on the menu.

Alba Prop director Tom Mifsud said GYG’s American exit showed even successful Australian food brands could not assume their local model would translate overseas.

“What works here is not a pick-and-drop exercise into different countries,” Mr Mifsud said.

“That means costs, wages, product type, product positioning, the makeup of the food, the whole lot.

“So there are lessons learned on both sides.”

Alba Prop director Tom Mifsud said GYG’s US exit showed Australian brands could not simply drop a local fast-food model into overseas markets and expect it to work.

Mr Mifsud said the company’s US retreat would become a test case for other Australian companies with global ambitions.

“What you will find is that GYG’s expansion becomes a great test case for other ambitious entrepreneurs and business owners who are looking to globalise,” he said.

“When they go overseas and look to deploy their product, they can avoid those learnings, make it less costly, and capitalise on the learning.”

Guzman y Gomez has about 250 Australian restaurants and is chasing a long-term 1000-store target, putting it in a growing fight for suburban sites with major fast-food rivals. Picture: Brendan Radke

He said he did not expect the failed US expansion to damage GYG in Australia, where the brand was already well understood by consumers.

“GYG is here. We know it, we understand it,” he said.

“People get behind great Aussie ventures, and it’s iconic to the Aussie brand.

“People look at the brand and affiliate it with Australians, and that’s what we’re all about.”

GYG’s renewed Australian focus comes as the local fast-food market becomes increasingly crowded, with El Jannah, Grill’d, Zambrero, Taco Bell, Betty’s Burgers, Wendy’s, McDonald’s, KFC and Hungry Jack’s all competing for customers and prime suburban locations.

The US might have rejected GYG, but its next fight will be much closer to home.

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david.bonaddio@news.com.au

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